The Ministry of Finance has warned that unpaid goods and services taxes (GST) and resort land rent arrears, which account for a large share of the state’s revenue, may pose a significant risk to the proper management of state finances.

According to the National Budget for 2024, compliance with tax laws and regulations slipped due to concessions made by the Maldives Inland Revenue Authority (MIRA) during the COVID-19 pandemic. At the time, MIRA had deferred payment of some taxes and land rents of resorts while pausing enforcement actions against unpaid taxes. However, with MIRA having since resumed normal enforcement, compliance, when it comes to taxes and other levies to the state, continues to remain low, the ministry said.

The principal amount of money owed to the state, excluding penalties, has increased significantly from June last year to June this year, the ministry said. If circumstances persist the state will not receive its estimated revenue and will have to take on additional debt to cover expenditure.

“If taxpayer compliance with tax laws and regulations continue to decline, the likelihood of recovering revenue within the year will decrease and the need to finance expenditure with debt will likely increase,” says the budget report.

According to the 2024 budget, the total outstanding, as of June this year, stood at MVR 7.7 billion, which is an increase of 28 percent (MVR 1.7 billion) over the previous year. Approximately two-thirds of the outstanding is from resort rents.

Unreceived revenue to the state in terms of taxes and other levies include MVR 536.8 million in income tax, which is up 106 percent from last year; MVR 972.9 million in tourism goods and services tax (TGST), up 71 percent; MVR 1.6 billion in general sector goods and service Tax (GGST), up 48 percent; MVR 920 million in other taxes, up three percent, MVR 3.4 billion in resort rents, up 17 percent; and MVR 171 million in non-tax revenue, down 16 percent.

According to the ministry, collections measures should be reviewed after determining the extent to which objectives are being met. As part of the effort, bills are being drafted to amend the Tax Administration Act of 2010 to address enforcement challenges, the Ministry of Finance said.